Sell in May….or just go away ?

This well-known adage has been around for a long, long time.
Apparently history suggests that the equity markets have been traditionally affected by decreasing volumes and long summer vacation periods causing lethargy in the markets, only to reversed from the end of October through the winter.
I just pulled up the results on the SP500 from 2000 to date: 14 years.

It would seem to me that you might have enjoyed significant success in 2001, 2002, 2008 and 2011: essentially 30%.
Looking at the chart will illustrate that you would have had to be nimble and could have made some reasonable profits on dips (had you sold); although not quite the same result if you done as required! Gone away.
Over the decades many things have changed: volumes, trading mentalities, the ability to leave market orders to manage risk positions – including protective electronic stops and profit targets, and the use of trailing stops.
And hedging tools and strategies have been developed in abundance.
The idea of taking note of this ‘strategy’ quite appals me! Most traders these days have to be alert and are reluctant not to watch their exposures 24/7 – even fund managers need to monitor changes even of longer term risks as their models will demand rebalancing at most month-ends.
Leaving things for 5 months or more? What were these guys thinking?! And more to the point, what were they paid for?
It wouldn’t be so bad, taking today’s market scenario, if we could establish a viable view to encourage us to take the advice mentioned.
I have reported on my Market Tutors blog a number of times that I am not alone in expecting a top in the equity markets (and an ensuing USD reversal to take hold) but on most attempts we get slapped around only to do it all over again.
The concept these days infers a cross-effect upon ‘risk’ in general so one has to logically argue that we may see a reversal in risk pairs such as GBPJPY, EURJPY, AUDJPY and so on. However we are currently perching at levels which are still somewhat precarious.
The S & P is trading above 1880 again (although in my opinion it lacks power to continue), USDJPY is holding 102 in spite of no changes in monetary policy from the BOJ (many commentators are now looking for no follow through from the Japanese until later in the year to attempt to continue the economic drive and weaken the yen); furthermore the EUR and GBP are both at threatening highs against the USD.
The more that Yellen and the Fed are not convinced in the US growth evidence and maintain intimations of lower rates, the more the bulls will scream ‘told you so’ at the top picking bears.
But the markets are long at these levels. Yes, I know I am a bore (almost a bear!).
I am very wary of a squeeze and dump (apologies if that is too much information ;-)).
Sell in May? Moi? You bet….it looks like time to increase that 30%!
And there is nothing wrong with the odd slapping, is there?
Editor’s note: two bits of friendly advice – don’t knock it till you’ve tried it, and, don’t risk what you can’t afford!

Author: David Horton is a partner in Market Tutors Ltd in the city (markettutors.com). He has had a significant career in financial markets; he is a trader and trainer with a passion for coaching and mentoring with a good dose of humour.
davidhorton@markettutors.com